Scars of Recessions in a Rigid Labor Market

Abstract

We study the impact of graduating in a recession in Flanders (Belgium), i.e. in a rigid labor market. In the presence of a high minimum wage, a typical recession hardly influences the hourly wage of low educated men, but reduces working time and earnings by about 4.5% up to twelve years after graduation. For the high educated, the working time is not persistently affected, but the penalty on the hourly wage (and earnings) increases with experience, and attains roughly -6% ten years after labor market entry. We also contribute to the literature on inference with few clusters.

Keywords: scars, graduating, labor market rigidity, recession, few clusters, cluster robust

JEL Classification: C120, C410, E320, I210, J220, J230, J310, J600